Maximizing Travel Deductions

5 Tips to Planning Your Holiday Travel with Your Tax Strategy in Mind
With the holiday season here, many people will be traveling so it is a great time to review a few tips on how your travel can help your tax strategy.

The tips I share here are specific to the U.S. tax law. The key is understanding the rules in your country and using them to your benefit in your tax strategy.

Tip #1
When traveling, spend more than 50% of your time each day on business activities and you can deduct 100% of your travel expenses. Plan your business and other activities so you can easily meet this requirement.
Tip #2
Travel expenses for your spouse and your children are 100% deductible if your spouse and children are involved in your business and spend more than 50% of each day on business activities. Planning is the key here. Plan your business and other activities so your family meets this requirement.
Tip #3
Create a reason that is great for your business to travel to your desired location. This is my favorite tip because I find when I create a great business reason to travel, my business benefits in a way that it wouldn’t have without the travel.

I have many friends and family members in Utah that I like to visit as often as I can. I decided to take a business trip there several years ago to explore the possible expansion of my rental real estate business into Utah. I spent more than 50% of each day on business activities and then I also had some personal time to visit with friends and family. My rental real estate business in Utah has doubled since then and my continued travel there is a legitimate business deduction.

Tip #4
If your travel is for personal reasons – treat it as personal and don’t deduct it. If one of your goals for a particular trip is to take a break from business, then treat that trip as personal. Trying to claim that as business travel could draw a lot of scrutiny to your legitimate business travel expenses.

Or, if your spouse and children don’t participate in the business, treat their portion of the travel expenses as personal – trying to deduct their expenses could jeopardize your portion that is legitimate.

Tip #5
Travel outside of the U.S. has a completely different set of rules. Be sure to discuss this with your tax advisor before you travel.
Use Your Travel in Your Tax Strategy
Travel is one of my favorite deductions because it is one of those expenses that most of us already have, and when planned properly, it gives us the opportunity to increase our business’ bottom line while decreasing our tax liability.
                                                                                                                  
Tom Wheelwright
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5 Myths about Tax Preparation

Use taxes to your advantage as a way to increase your wealth! -Joshua Gamen
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5 Myths About Tax Preparation
I’ve been involved in the tax return preparation process for 30 years. During those years, I’ve come across many myths that people believe about tax preparation.

Today, I’ll share the top 5 myths I hear about tax return preparation and why they are not true.

Myth #1: A Refund is Great News
You’ve probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers’ refunds.

Isn’t this great news? I’m not so sure it is.

A refund can seem like great news, especially if it isn’t expected, but it usually indicates a lack of tax planning. With proper planning, that refund can be received a whole lot earlier. While most people don’t want to owe tax when they file their return, they also don’t like to part with their money any earlier than they have to and that is exactly what a refund reflects.

Myth #2: Filing an Extension is Bad
Many taxpayers are hesitant to file extensions for their business or personal tax returns for fear that there are hidden disadvantages to doing so. This is not true. In fact, extending your tax return can be a great tool in your tax strategy.

Extensions are helpful to avoid having to file amended returns. Sometimes the forms or information you receive from others to complete your tax return may be amended. If you receive an amended form and you’ve already filed your return, then you must amend your tax return.

Other times, the information you need from others to complete your tax return may be late. Filing an extension provides you with the time to gather this information and accurately report it on your tax return.

Remember: An extension does not mean you are off the hook when it comes to gathering your tax information timely. It is still important to gather all of your tax information timely so the extension can be prepared with the best information available.

Also, an extension does not extend the due date of any taxes due with the return. Any tax liability due with the return is due on the original due date.

Myth #3: Tax Return Preparation is a Cash Outflow
Tax return preparation fees can vary dramatically. This makes it extremely important to look at the big picture rather than just the cash outflow.

Let me give you an example. Suppose you have a choice of paying $500 for your tax return to be prepared or $2,000. All things being equal, anyone would choose to pay the lesser amount.

But, what if all things are not equal? What if the $500 gets you an adequate, accurate return but the $2,000 would get you a return where you legally pay $5,000 less in tax? Which is the better deal? In one, you are out $500. In the other, you are ahead a net of $3,000.

Before you have your next tax return prepared, review your own tax situation and the advice you are receiving from your tax preparer. Are you getting the return on investment you want? Are you getting the planning ideas you need? Are your taxes going down or do they continue to increase?

Myth #4: Accurate Returns Are All The Same
In all the firms and companies at which I have worked, the basic accuracy of tax return preparation was excellent. I find this also to be the case on returns that I see from clients who are new to ProVision. It’s rare that I find a flagrant error in a return.

But, does that mean that these firms all produce the same quality of tax return? The clear answer in my experience is a resounding “NO!”

Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the best way it could have been prepared. In fact, I rarely see a tax return from a new client that was prepared the way we would prepare it at ProVision.

For example, certain deductions can be classified in different ways. While each way is technically accurate, the tax impact of each can vary dramatically.

It’s not safe to assume your tax preparer (or tax software) knows the difference.

Never use a tax preparer who isn’t also your tax advisor. You may otherwise get great advice that is never used and lose out on great tax savings.

Myth #5: The Software Does All The Work
Whether you do your tax return yourself or hire someone to prepare it, most likely there is tax software involved. Many people make the assumption that the tax software does all the work.

While the tax software performs the calculations (usually quite accurately), it’s easy to get into trouble if the input going in is incorrect.

The true work and expertise – and resulting tax savings – is in the knowledge of the tax preparer.

                                                                                                                          

                   Written by: Tom Wheelwright

Tom Wheelwright

Using Your Retirement Plan in Your Wealth Strategy

Your wealth strategy and your retirement plan are one in the same. Don’t just hand your money to someone else to do what’s in your best interest for you and your family’s future. If it is up to be, it is up to you! -Joshua Gamen

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Using Your Retirement Plan in Your Wealth Strategy
One of the most popular questions I receive about a wealth strategy is this:I want to use the money in my retirement plan for a specific investment. Should I make the investment inside my retirement plan or should I distribute the money from my retirement plan and make the investment outside of my retirement plan?

My answer (of course) is it depends. It depends on your specific facts and circumstances.

Today, I’ll share some of the key factors to consider to help make this decision.

Factor #1: What Investment Options Are Available in Your Retirement Plan?
The term “retirement plan” covers a huge range of retirement plans – each of which has their own specific set of rules.You will first want to determine what your investment options are in your retirement plan. Some retirement plans, like an employer sponsored retirement plan, limit your investment options. Other retirement plans offer a broader range of investment options.

Factor #2: Are the Distributions Subject to Penalties?
While the rules vary by the specific type of retirement plan, in general, if money is distributed from a retirement plan early, meaning before the date allowed by the government and/or employer rules, then the distribution will most likely be subject to penalties.Penalties don’t rule out distributing the money, they just need to be factored in to your analysis.

Factor #3: Are the Distributions Subject to Income Tax
Depending on the type of retirement plan or when the distribution is taken, retirement plan distributions may be subject to income tax.Like penalties, just because the distributions may be taxed doesn’t rule out distributing the money – it just needs to be factored into your analysis.

Factor #4: What is Your Personal Situation?
Your personal situation plays a big role here. For example:– Is your tax bracket low or high?
– When can you take distributions from your retirement plan without penalty?
– What is your expected return on investment inside of your retirement plan?
– What is your expected return on investment outside of your retirement plan?
– What will you do with the investment long term?

Factor #5: What Type of Income Will Your Investment Produce?
Investments can produce different types of income including ordinary income, interest income, dividend income, rental income and capital gain. Some income types work very well inside a retirement plan, and others may cause your retirement plan to pay tax.
Factor #6: Does Your Investment Involve Leverage (Debt)?
If your investment involves debt, then this is a critical factor to understand.In some retirement plans, the tax implications of debt can be significant. For example, income generated from the debt can be taxable. Or, if you guarantee the debt personally, there could be tax consequences.

It’s important to not only understand the tax implication of using debt in your retirement plan, but also to understand how it can impact your investing. Many lenders are not willing to make a loan to a retirement plan without a personal guarantee. However, a personal guarantee, as noted above, could trigger tax. Lenders who are willing to lend to a retirement plan without a guarantee are usually not willing to lend as much as they would if there were a guarantee and the rate is usually higher.

It is extremely important to understand your leverage options inside and outside of your retirement plan before moving forward with your investment.

Factor #7: What Tax Benefits Will Your Investment Generate?
While retirement plans are often viewed as a great tax deferral vehicle, many tax benefits can be lost in retirement plans.For example, if a distribution is taxable from a retirement plan, it is generally taxable at ordinary income tax rates. This is true even if the income inside the retirement plan was capital gain income – which outside of a retirement plan has lower preferred tax rates. The tax benefit of the lower rate is lost.

Another example is investments that create losses for tax purposes. Some investments, like rental real estate or oil and gas, often create losses for tax purposes even though they generate positive cash flow. Losses inside a retirement plan are typically lost because the retirement plan usually doesn’t have any tax for the losses to offset.

Your Retirement Plan and Your Wealth Strategy
Your retirement plan can give your wealth strategy a tremendous boost. The key is understanding the best way to integrate your retirement plan into your overall wealth strategy.

Written by: Tom Wheelwright

Tom Wheelwright

5 Tips to Keep Your Wealth Strategy on Track

There is so much more to building wealth than making money. A Wealth Strategy is crucial. If you do not have a wealth strategy, use December to educate yourself and build one, think about what your goals are and write down a plan to get there. A wealth plan is not a “get rich quick” plan, so think education first.  -Joshua Gamen
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5 Tips to Keep Your Wealth Strategy on Track
With a new year right around the corner, it’s a good time to think about the activities that have a positive impact on your wealth strategy.
Here are 5 Tips to Keep Your Wealth Strategy on Track:
Tip #1: Avoid Winging It
Winging it means taking action without a strategy to support the action.

For example, buying gold because it seems like a good investment, or buying a rental property because it seems like a good investment.

What makes an investment a good investment is how it works toward the goals in your wealth strategy. Simply making an investment because it seems like a good investment isn’t enough – what will it do in your wealth strategy to achieve your wealth goals?

While it is great to take action, there needs to be a strategy behind the action so the actions lead to the results you want.

Winging it in a wealth strategy can set the wealth strategy behind by years – even decades.

Tip #2: Make Your Wealth a Priority
Letting your wealth strategy slip as a priority is something that can often sneak up on us.

For example, let’s say you have a goal to invest in a rental property and have a plan to look at prospective properties this month.

However, when you get the call to go look at the properties, you’re in the middle of running errands, or too busy with work, or need to finish a project. The list goes on and on. Looking at properties gets put on hold and your wealth strategy quickly falls off track.

There is always something else to do if your wealth strategy is not a priority.

Tip #3: Your Neighbor’s Plan Isn’t Your Plan
I’ve had people share with me many times that they made an investment because their neighbor (friend, co-worker, colleague, etc.) made the same investment.

What works for your neighbor will not necessarily work for you.

Your wealth strategy must be specific to you based on your likes, your dislikes, your family, your goals, your dreams, and your financial situation. To maximize the results of your wealth strategy, it must be customized to you.

Tip #4: Succeed With a Team
I always share that the 3 most expensive words in the English language are “Do-It-Yourself.”

The road to achieving your wealth goals is not always a smooth one. In fact, it is common to hit several bumps along the way.

Those who have a team are less likely to get off track when they hit that first bump, or maybe they make it to the second or third bump before turning around. Navigating with an entire team supporting you makes the process much smoother.

Build a team around you to support you and help you achieve your wealth goals.

Tip #5: Avoid Taking it to the Extreme
Taking it to the extreme means you have no balance in your wealth goals. You are trying to go at a speed that no one can possibly sustain – and that means a lot coming from me because I like things to move fast.

The challenge with going at an unsustainable speed is it all too often leads to crashing and burning, and that can be devastating in a wealth strategy.

Set reasonable goals and make your wealth building part of your everyday life.
                                                                                                                  
Tom Wheelwright

Making Your Tax Savings a Reality

No tax strategy is bad and will cost you a lot of money that you never even knew you had – Joshua Gamen
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Last week I shared a few tips about forming your tax strategy.

A tax strategy is a step-by-step action plan that ensures you are paying the least amount of tax allowable by law, regardless of your business or investment situation.

A tax strategy is comprehensive. It considers:

– Your personal and financial goals and dreams
– Your business, your investments and your family situation
– How your businesses and investments are owned
– The appropriate entity structure for your business and investments
– Your current situation to uncover deductions and other permanent tax saving opportunities

Those who are most successfully in their tax strategy make it a part of their every day activities. To them, a tax strategy is not a one-time event. Rather, it is something that becomes part of their routine.

A tax strategy helps you to view your every day activities in a different way – one that works toward the goal of permanently reducing your taxes.

The reality is that just about everything you do can have an impact on your taxes. So, why not make sure that impact is a positive one?

Here are a few examples of every day activities that can impact your taxes:
– Paying expenses
– Receiving money from an entity you own
– Putting money into an entity you own
– Having a meeting with partners, vendors or advisors
– Buying or selling investments
– Having an important discussion about your business or investments

The above items are activities you probably already do on a regular basis. By keeping your tax strategy in mind while doing these activities, you can improve the results of your tax strategy – all without having to do anything out of the ordinary.

Paying your expenses
When you pay your expenses, who is paying for that expense? Is it you personally? Should it be your entity instead? What type of documentation do you need to keep for your tax strategy?

Unless you have your tax strategy in mind, it is easy for this ordinary transaction to have a negative impact on your taxes.

You may pay for business expenses personally and forget to have your business reimburse you – this means the expense gets missed as a tax deduction.

When you keep your tax strategy in mind, it will be routine to have your business reimburse you. Or, even better, it will feel wrong to not have your business pay for the expenses in the first place.

Receiving money from an entity you own
Every payment you receive from your entity can have an impact on your taxes. This may include salary, distributions, expense reimbursements or other forms of payments.

Your tax strategy maps out the best way to take money out of your entity. Making sure those payments are treated as they are supposed to be, should be part of your every day activities.

For example, if you are receiving a salary, it should look like salary. This means it’s paid on a set schedule (weekly, bi-weekly, bi-monthly, monthly, etc.) and the proper taxes are withheld.

Similarly, if you are taking a distribution, it should look like a distribution. Distributions are usually not paid more frequently than quarterly. Also, distributions are usually not a set amount as they are typically tied to the profitability of the entity. If your distribution is paid every two week, it looks more like a salary and this can have a negative impact on your tax strategy.

Keeping this in mind, as you receive payments from your entity, helps the success of your tax strategy.

Having a meeting with partners, vendors or advisors
If you are meeting with a partner, vendor or advisor, odds are you are discussing items that impact your tax strategy. These meetings likely cover topics important to your tax strategy, like investments, new opportunities, strategic decisions or major purchases.

All of these are great to have documented in the form of meeting minutes. Meeting minutes provide tremendous support for deductions, investments and business purpose – all of which help the success of your tax strategy.

Your Tax Strategy
Those who are most successful in their tax strategy are those who have incorporated it into their routine. When reaching for a credit card to pay for lunch, they are asking themselves, “Should I pay with the business card or my personal card?”

It is the every day activities that make tax savings a reality.

                                                                                                                                            
Tom Wheelwright

Economic Update: Information – Taxes – Gold n Silver

This week we are talking about information, and how it effects you if you are a trader or a cash flow investor. We’ll talk a bit more about employment. Also on the agenda is the tax code and why it is set up the way it is. Of course I’m going to rant about gold and silver. And then I’ll let you know what I see this weekend in the BCS 

 

From Tom Wheelwright: The Power of Systems in your wealth strategy

I’m constantly asked how to use leverage in different ways in a wealth strategy – and I’m glad people are asking because leverage plays a huge role in every successful wealth strategy.

Leverage is simply doing more with less.

Here are 3 of my favorite forms of leverage.

#1: Systems
I think systems are one of the most important and powerful features of a wealth strategy.

Systems are simply the process or procedures to complete specific tasks. Systems provide the detail of the who, what, when, where and how something will be done.

Think about a franchise. One of the greatest values a franchise offers is its systems. The systems provide all the details about how to market, sell, fulfill and everything else involved in operating that franchise. A franchisee simply has to follow the systems.

Let’s say you invest in rental real estate. You should have systems for:

– Identifying the property to buy
– Purchasing / financing the property
– Renting the property
– Maintaining the property
– Reviewing the performance of the property

Systems don’t have to be complicated. They just need to document what needs to be done in a clear manner. Systems can be as simple as a checklist.

If you are just starting your wealth strategy, you may wonder why you need systems if you are doing everything.

Here’s 2 reasons why you need systems:

Reason #1
Your systems are the place to document the specific details of what needs to be done. They are also the place to document your best practices – your trade secrets. As you learn better ways to do things, document that in your systems.

Your systems enable you to leverage your time by making you more efficient while still getting the results you desire.

Reason #2
Many people start off doing everything themselves, but they usually have a goal to grow their wealth and hire others do the work. If you want to do this successfully, systems are imperative. Systems communicate your specific expectations without you having to be there.

Many people have wealth strategies that never reach their full potential because they are not able to give up control.

With systems, you don’t have to give up control. You’re giving up the specific tasks, but you are still in control. You control the systems.

When your systems are created, used and monitored properly, they will tell you when things are working and when they aren’t working. This allows you to focus your attention where it is most needed – this is a huge form of leverage in a wealth strategy.

#2: Your Wealth Team
Systems definitely take time to create. You don’t have do it all yourself though. This is where your wealth team comes in to play.

One of the best examples of leverage in a wealth strategy, and also one of my favorites, is a wealth team.

A wealth team is a group of advisors, coaches, mentors, employees, vendors and other contacts who assist you in building your wealth.

With a wealth team, you can leverage your time by hiring advisors, coaches, mentors, employees and/or vendors. But the leverage doesn’t stop there. This is just the beginning. You can also leverage your wealth team’s contacts, their resources, their knowledge – the list goes on and on.

Use your wealth team to help you create your systems. Leverage their resources and expertise to add value to your systems.

Once you’ve created your systems, share them with your team members so they can be part of the systems and contribute to the success of your wealth strategy.

#3: Software
Software is a wonderful form of leverage. Software allows us to do more with less every day.

Software can be an integral part of effective systems. When used properly, software can streamline many tasks while providing better information and results.

Software can be the driving force behind the systems. It can notify the who about the what, when, where and how. And, it can provide real time reports about how the systems are working. These reports are what help you stay in control.

How do you know what software to use?
Leverage your team’s knowledge – ask them what software you should be using. And, if you truly want to leverage your software with your systems, have a team member who is committed to integrating the two.

Using Leverage in Your Wealth Strategy
Think about how you use these 3 forms of leverage in your wealth strategy and identify ways that you can leverage them even more.

Focus on your wealth!

Tom Wheelwright
Founder & CEO

Do you want to be rich or do you want to be wealthy?

The following was written by my tax advisor Tom Wheelwright. Tom is a CPA here in Tempe, AZ, but he is known around the world from his books. Tom has written a lot about the tax codes and has a keen understanding of why the tax code is set up the way it is, not only in America but in most every developed nation in the world.

There is a HUGE difference between being rich and being wealthy. There are many famous athletes and musicians, etc that make it RICH off of their talent. Talent can make you rich, but it takes a financial education to make someone WEALTHY. Wealth means not only do you have a lot of money, but you can continue to make more money when you need, and you have your assets protected. You can be rich from free parking(capital gains), OR.. you can be wealthy from cash flow!!!

I once heard it put this way, your wealth is the equivalent to the amount of time you could go without working and sustain the quality of life that you desire.

-Josh

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Written by: Tom Wheelwright

Do you know people who make lots of money but never seem to have any money? Or maybe they have luxurious homes and expensive cars, but they still have to go to work every day to make ends meet?

Those with lots of money may be rich, but they are not necessarily wealthy.  In fact, many people who have high income, often have very low wealth.

This is because making lots of money has nothing to do with how much wealth a person has.

I was talking with a new client recently who runs a very successful business. He makes hundreds of thousands of dollars each year, but has more liabilities than he has assets.  Plus, he has to be “in” his business in order for his business to sustain its success.

While he is well-educated, his education never taught him how to turn the money from his business into permanent wealth.  If he stops working, so does his business.

This client is rich, but he is not wealthy.

This is not a criticism of this client.  It is usually what we are taught (or rather what we are not taught).  Most people do not receive any education on how to be wealthy.

Rich Versus Wealthy
Being rich is different than being wealthy.  The difference is very simple:

It’s knowledge.

Rich people only have money and how long they have the money is unpredictable.

Wealthy people know how to make money and have sustainable wealth.

In other words, a wealthy person will always be wealthy, whereas someone who is merely rich will only be so for a short period of time until the money is gone.

Once you know how to make money, you can build sustainable wealth. The money never stops coming. If you have a reversal of fortune, it’s not a big deal. You just make it back.

You Can’t Simply Hand It Over and Forget About It
Most people are taught to turn their finances over to a financial advisor, and that taxes are too difficult so they need to hand them over to a tax advisor.

The problem with this is that many people think this is the end-all solution and once it is handed over, they can forget about it.

The idea of handing over your taxes and finances to someone else can be tempting.  But the reality is, the likelihood of getting the results you want is very slim when you hand over your taxes or your finances.

Even the best advisors cannot provide the best results if their clients are not involved in the process.

One key piece of knowledge the wealthy have is that they understand how their daily decisions and actions impact their wealth and taxes.  While they have a team who handles their wealth and taxes, they understand that they have a key role and they know when they need to get their team involved.

Here are a few examples of when your team needs to be involved:

– Before setting up a new entity
– Before any major purchase (real estate, equipment, vehicles)
– Before selling an investment
– Before taking on a new partner
– Before starting a new business

These are just a few examples, but they all start with BEFORE.

The new client I was talking with came to me AFTER a major purchase.  While we were able to do great things with his wealth and tax strategy, we could have done even better if we were involved before.

I’m not suggesting that you have to do all the work or become an expert.  There are experts that you should have on your team, who can do the work for you, but you have to have the knowledge to know when to get your advisors involved and the knowledge to understand how your actions impact your taxes and your finances.

Focus on your wealth!

Tom Wheelwright
Founder & CEO

Investing in Real Estate with your IRA

by Tom Wheelwright

This week, I’ll share 2 Key Steps to Take Before Investing in Real Estate in Your IRA.

While I’m focusing on the U.S. tax law here, the approach can be applied to retirement plans in other countries as well.

Step #1: Understand the Special Tax Treatment Rules for IRAs
IRAs receive special tax treatment on certain types of income.

The special tax treatment is that the income is not taxed currently. In the case of a traditional IRA, it is taxed when it is distributed – the tax is deferred.  In the case of a Roth IRA, it is never taxed – the tax is eliminated.

There is a very important detail that gets missed here:
The special tax treatment only applies to certain types of income.

IRAs only receive the special tax treatment on certain types of income. This income includes interest, dividends, capital gains and rents.  If an IRA produces this type of income, the income is not taxed currently.

If the IRA produces income that is not in this group of tax-favored income, then it could be taxable.

What is important to remember here is not all income receives special tax treatment just because it is in an IRA.

Step #2: Understand the Type of Income Your Real Estate Will Generate
Real estate can produce many different types of income – this is one of the many reasons I love real estate.

Real estate can generate interest income, rental income and capital gains.  These are all tax-favored types of income in an IRA and, as such, they receive the special tax treatment.

Real estate can also produce ordinary income.  An example of this is flipping real estate where real estate is bought with the intent to sell it quickly for a profit.  Ordinary income is not in the group of tax-favored income and could be taxable in an IRA.

Understanding how the income generated from your real estate will be taxed to your IRA is key to making sure your IRA receives the full benefits from the special tax treatment available to it.

Understanding the Rules
As I mentioned, there is a lot of confusion in this area.  Here is a good example of this.

One person may share that they were told it was a bad idea for their IRA to invest in real estate and another person may share the opposite.

The key to clearing up the confusion is getting more specific because not all income from real estate receives favorably treatment in an IRA.

One person’s IRA may be investing in tax liens that generate interest income and another person’s IRA may be flipping real estate.  One receives favorable treatment and the other doesn’t.

Starting with these two steps helps create a clearer picture of the tax consequences to your IRA.  Of course, these aren’t the only steps to take and I’ll share more on the topic of real estate in an IRA in the future, but these are the key steps to take early on in the process as they can provide helpful guidance and direction.

Focus on your wealth!

Tom Wheelwright
Founder & CEO

Using Tax Rates To You Advantage

Understanding how taxes work is critical to creating and sustaining wealth. The first step is to make more money. The second step is to KEEP more of what you make.

Enjoy this great piece, written by my CPA and accounting adviser Tom Wheelwright.

-Josh
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By: Tom Wheelwright

What’s your tax rate? Some people may be able to answer this off the top of their head. When they do, they are probably thinking about their personal effective tax rate – which is their average tax rate. It’s pretty rare that someone is aware of all the tax rates available to them.

Understanding ALL of the tax rates available to you is a great way to identify opportunities to reduce your taxes.

Individuals, in all countries, typically have several tax rates which usually include:

· Tax rate on earned income
· Tax rate on ordinary income
· Tax rate on investment income (such as dividend income or capital gains)

Which tax rate applies to you usually depends on the type of income you have.

This is where thinking about your tax rates as a habit can really payoff.

In the U.S., tax rates can range from 0% to 40% and sometimes even higher. If you are able to change the type of income you have from one that is taxed at 25% to one that is taxed at 15%, you’ve just eliminated 10% of your tax – permanently!

The reason this must be a habit is because this type of planning must be done before the transaction takes place – sometimes even years before!

A great example of this came up in my monthly tax coaching teleconference last week. A real estate investor shared a deal he has had in the works for a few years. He was now at a point where he was making a decision about the direction of this investment. I was really excited when he explained his situation because I knew there was huge opportunity with changing the type of income the deal would produce and that would lead to a much lower tax rate. I shared with him how he could reduce his tax rate on his deal by up to 25%.

Beyond Your Tax Rates
To take this planning to the next level, consider not just your tax rates but the tax rates of others. For example, entities can have their own tax rates. If the entity’s tax rate is less than the individual’s tax rate, there is opportunity for tax savings.

Make it a habit to think about ALL of the tax rates available to you!

Get Started Now
Remember, the government wants you to reduce your taxes and using lower tax rates is perfectly legal as long as you follow the rules. Understanding how these rules apply to you will help you create the habits in your daily routine to reduce your taxes.